This morning amid another Huge sell off in the markets the Fed announced an emergency rate cute to the Fed Funds Rate. The Fed decided it was necessary to cut the lending rate by 1/2% to 1.5%. This will affect most everyone that has a variable Home Equity Line of Credit as these lines are attached to the Wall Street Journal Prime rate which is directly affected by the Fed Fund Rate.
This will also affect credit cards and personal lines of credit associated with this index. It will not however lower long term mortgage rates as they are Not associated with Prime or the Fed Fund Rate. Long term mortgage rates will be affected by how Wall Street digests this information and if it causes the markets to rally then long term mortgage rates may feel a negative impact if traders ditch their heavy positions they have taken up in the past weeks in Government Treasuries.
Treasuries or Bonds as they are widely known do directly affect long term mortgage rates. As bond prices slide due to sell off's in the bond market yields increase and as yields increase so do mortgage rates right along side them. Mortgage rates are much like gas prices in that the slightest increase in the bond yields sends rates soaring, just like gas prices do immediately when the price of oil increases. Just like gas prices mortgage rates take their sweet time coming back down even when bond yields drop.
There is no question that the bear's are ruling the market and have traders running for cover.
Since my last post on Citi ingesting Wachovia there has been a new cowboy roll into town and they want part of the action. The new cowboy is Wells Fargo, they literally overnight stepped on Citi banks head as they entered the ring to negotiate with Wachovia. It was announced by Wachovia the very next morning that they had dumped Citi like a bad habit and were in exclusive negotiations with Wells Fargo now. Keep in mind guys I had already received emails from Vertice (Wachovia) and Citi reps talking about the transition to Citi and how seamless they were going to make it as this was a done deal. Then in an instant not only was it not a done deal but I was getting emails from that same Vertice (Wachovia) rep saying stay with us things are changing but Wells Fargo is great and its going to be a great marriage.
Now they are all tied up in a legal suit that was filed by Citi on the grounds that "hey you can't come in here and still my girl friend I saw her first." Wells Fargo seems more then poised to have a draw with Citi if that's what it comes down to. Wells still carries it's six shooter which is it's AAA rating with the ratings agencies, it is the only bank in the US to pack that power, it also boasts the Oracle of Omaha Sir Warren Buffett being a huge investor and backer of the bank. Citi on the other hand is down to a BB Gun and is running out of BB's at that.
My money is on Wells not only in this transaction but to come out on top after all of this is said and done. The real standoff to see who will be King of the Hill is going to be between Wells Fargo and JP Morgan Chase.
Go long on these two banks as they have what it takes to weather this storm, gobble up the competition for pennies on the dollar and become the World Powers in the Banking industry.
Rates are near 5 year low's right now so if you are the guy or gal who has had that brother in law that is always bringing up his 5.5% 30 year fixed rate that he got back in 2001 and your sick of hearing about it, call me and lets see if we can put an end to his rate dominance once and for all. Act quick these bond prices can't last.
Keeping you Informed,
Stetson Lowe - Utah Mortgage Insider - www.UtahLoanTips.com
